A recent Government Accountability Office (GAO) decision, International Business Machines Corporation, B-410639, et al., Jan. 15, 2015, highlights the need for contractors to ensure that both they and their subcontractors are free of or can sufficiently mitigate any organizational conflicts of interest (OCIs).

On January 15, 2015, the GAO denied IBM’s bid protest over an award of an indefinite-delivery/indefinite quantity contract to upgrade a Department of Defense payroll system.  IBM protested its elimination from the competition because key personnel from its proposed subcontractor, Booz Allen Hamilton, were involved in developing the statement of work, solicitation and other key acquisition documents and strategies, resulting in a “biased ground rules” OCI.

A biased ground rules OCI occurs when a company has a hand in setting the ground rules for a competition, and may therefore have an unfair competitive advantage in that competition.  The second type of OCI, “impaired objectivity,” occurs where a contractor is required to exercise judgment in the performance of a contract, but has an economic interest that could potentially influence the exercise of judgment.  The third type of OCI is “unequal or unfair access to nonpublic information,” which occurs where an offeror has access to nonpublic information in its performance of a government contract that could provide an unfair competitive advantage in a later competition for a government contract.

When IBM was first notified of the potential biased ground rules OCI it took the position that there was no  potential or actual OCI regarding itself or its subcontractor.  IBM later offered to have its subcontractor terminate a key employee to mitigate any potential OCI.  The contracting officer found the proposed mitigation was insufficient, determining the proposed action would not resolve the OCI because “the employee had already influenced the specifications, the harm has already been done,” and eliminated IBM from consideration for award.  The GAO found the contracting officer’s determination that an OCI existed and that IBM had failed to mitigate the OCI was reasonable.

This decision highlights the need for prime contractors to thoroughly vet their subcontractors for OCIs, particularly ones that involve biased ground rules.  It also serves as a reminder that the GAO affords contracting officers broad discretion with regard to determinations regarding the existence of an OCI and the adequacy of proposed mitigation plans.